G.R. No.

125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:

FACTS: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner
Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question:

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).

The application was approved for a period of one year. Under the agreement, respondent’s husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits"
such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the
agreement, the same was extended for another year and The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one
month. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a
concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement
that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00. Her husband subsequently passed away.

Trinos instituted with the RTC, an action for damages against petitioner and its president, Dr. Benito Reverente. The Court
renders judgment in favor of the plaintiff Julita Trinos.On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner Reverente. Petitioner’s motion for reconsideration was
denied. Hence, this appeal.

ISSUE: WON a health care agreement is not an insurance contract; hence the “incontestability clause” under the Insurance
Code does not apply.

HELD: Petitioner claimed that it granted benefits only when the insured is alive during the one-year duration. It contended
that there was no indemnification unlike in insurance contracts. It supported this claim by saying that it is a health maintenance
organization covered by the DOH and not the Insurance Commission. Lastly, it claimed that the Incontestability clause didn’t
apply because two-year and not one-year effectivity periods were required.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance
contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a
similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death
or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
 In this case, the husband’s health was the insurable interest. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity. The provider must pay for the medical expenses resulting from sickness
or injury.
While petitioner contended that the husband concealed material fact of his sickness, the contract stated that:
“that any physician is, by these presents, expressly authorized to disclose or give testimony at any time relative to any
information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of
the Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports about his medical condition. The
contract also authorized Philam to inquire directly to his medical history. Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to disclose information was
a grounds for revocation simply because the answer assailed by the company was the heart condition question based on the
insured’s opinion. He wasn’t a medical doctor, so he can’t accurately gauge his condition.
Henrick v Fire - “in such case the insurer is not justified in relying upon such statement, but is obligated to make
further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.“Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish
facts on which cancellation is based

None were fulfilled by the provider. As to incontestability- The trial court said that “under the title Claim procedures
of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement
within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance
of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.”

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the
professional fees of the attending physicians.

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December
14, 1995 is AFFIRMED.

SO ORDERED.